How to Analyze a Stock Using Toolkit 6
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The document provides a guide on how to analyze a stock using Toolkit 6, focusing on key factors such as growth, quality, and valuation. It highlights the case of ScanSource, Inc., detailing its growth history, earnings performance, and industry comparisons to support investment decisions. The analysis aims to help investors evaluate the company's future prospects and fit within their portfolios.
How to Analyze a Stock Using Toolkit 6
- 1. How to Analyze a Stock in Toolkit 6, by Doug Gerlach by Douglas Gerlach President, ICLUBcentral Inc. gerlach@iclub.com May 2011 } To dissect a stock using Toolkit 6 } Consider factors which affect the company as evaluated during a stock study: ◦ Growth ◦ Quality ◦ Valuation Page 1 of 10
- 2. How to Analyze a Stock in Toolkit 6, by Doug Gerlach } Growth ◦ Evaluate the components of historical growth ◦ Consider factors which may affect future growth } Quality ◦ Evaluate company’s quality characteristics ◦ Consider factors which may affect future quality } Valuation & Projected Return ◦ Evaluate stock’s current valuation ◦ Consider factors which may affect valuation in future and potential return } NASDAQ: SCSC } Sector: Technology } Industry: Computer Distribution } Description: Leading international distributor of specialty technology products, consisting of seven sales units in North America, Latin America and Europe. } Products: – AIDC (bar code) and Point of Sale (POS) – Communications (voice, data and video) – Physical Security (video surveillance and access) } Distribute for over 200 technology manufacturers } Over 21,000 value-added technology resellers } Central logistics strategy for major geographic regions Page 2 of 10
- 3. How to Analyze a Stock in Toolkit 6, by Doug Gerlach } Founded in 1992 } 1,100 employees } Corporate headquarters in Greenville, SC } 19 offices in North America, Latin America & Europe } 24% of business is International } Ranks #881 on Fortune 1000 } Currently in Russell 2000 and S&P SmallCap 600 Indices } http://www.scansource.com } Does past growth of Sales & EPS warrant further consideration? } Revenues steadily increasing ◦ 10 year (‘01-’10) Revenue growth – 14.3% } EPS growing, though at lower rate ◦ 10 year (‘01-’10) EPS growth – 13.0% } 10-yr EPS R2: 0.90 Page 3 of 10
- 4. How to Analyze a Stock in Toolkit 6, by Doug Gerlach } Growth declined in ’09 } Is this acceptable? ◦ Attributable to recession? ◦ ‘10 showed improvement, first 1 quarters of ‘11 showed much improvement. } Look more closely at quality of earnings, particularly trend of pre-tax profit margins & industry comparisons. Page 4 of 10
- 5. How to Analyze a Stock in Toolkit 6, by Doug Gerlach } 3rd quarter ended 3/2011 just reported on 4/27/11 – too new for data service. } Press release on company web site or Yahoo! Finance News provides key data. } Sales up 23.6%. } EPS up 33.3%. } Note how price tracks EPS growth } Annual high price doesn’t increase every year } Still, price growth consistent with long-term trends. Page 5 of 10
- 6. How to Analyze a Stock in Toolkit 6, by Doug Gerlach } 5-year Analysts Consensus EPS growth for SCSC: 10.% } Implied growth rate for SCSC: 14.4% } Next 2 FY EPS: $2.49 (2011) & $2.74 (2012) (Nasdaq.com) } 5-yr average PTP: 3.8% } 2010 PTP: 3.6% } 5-yr PTP trend: Even } Industry comparison Page 6 of 10
- 7. How to Analyze a Stock in Toolkit 6, by Doug Gerlach Computers Distribution Debt/ Symbol Company ROE % PTP Equity IM Ingram Micro Inc. 16.3 3.6 1.1 SCSC Scansource, Inc. 6.2 12.4 3.8 TECD Tech Data Corporation 2.8 5.0 0.8 WSTG Wayside Technology Group 0.0 14.9 3.3 StockCentral, May 2011 SCSC IM TECD SNX Industry Market Cap: 965.6M 2.9B 1.1B 2.4B 65.3M Employees: 1,074 15,650 10,000 8,700 499 Qtrly Rev Growth (yoy): 24.7% 12.2% 29.2% 13.3% 18.10% Revenue (ttm): 2.4B 34.5B 9.1B 24.3B 40.9M Gross Margin (ttm): 10.2% 5.4% 5.7% 5.2% 45.6% EBITDA (ttm): 101.4M 547.1M 231.8M 381.2M 3.2M Operating Margin (ttm): 3.9% 1.4% 2.3% 1.3% 7.6% Net Income (ttm): 63.3M 318.0M 123.0M 214.2M N/A EPS (ttm): 2.35 1.94 3.40 4.36 0.06 P/E (ttm): 15.2 9.6 9.5 11.9 16.0 PEG (5 yr expected): 1.4 0.8 0.9 1.0 1.2 P/S (ttm): 0.4 0.1 0.1 0.1 1.2 http://finance.yahoo.com/q/co?s=SCSC Page 7 of 10
- 8. How to Analyze a Stock in Toolkit 6, by Doug Gerlach } Consider historical high & low P/E Ratios ◦ Any outliers? } Review & select expected average high & low P/E Ratios ◦ Compare to projected EPS growth rate – do they fit? } Dig into Business Model method of projecting EPS } Consider worsening profit margin scenario } What factors affect future profitability? } Compare results to projection to ensure reasonable expectations Page 8 of 10
- 9. How to Analyze a Stock in Toolkit 6, by Doug Gerlach } Select high & low 5-year prices } Evaluate zoning } Review Relative Value } Review projected total return } It’s time to reach your own conclusion! } How would this stock fit in your portfolio? } Are returns acceptable? } Is risk level acceptable? Page 9 of 10
- 10. How to Analyze a Stock in Toolkit 6, by Doug Gerlach } ScanSource web site (http://www.scansource.com) ◦ Annual Report ◦ Press Releases } Quarterly & Annual SEC Reports } StockCentral (http://www.stockcentral.com) } Nasdaq.com (http://www.nasdaq.com) } MSN Investor (http://investor.msn.com) } Yahoo! Finance (http://finance.yahoo.com) } ICLUBcentral Inc. www.iclub.com } Write me: gerlach@iclub.com Page 10 of 10